EU targets greenwashing, financial risks in strategy draft
The European Union will put in place tighter measures on banks and credit rating agencies in an effort to prevent “greenwashing” and to reduce systemic risks from climate change, according to a draft document seen by Bloomberg.
The “Strategy for Financing the Transition to a Sustainable Economy,” due to be unveiled by the European Commission next week alongside a rulebook for green bonds, will propose tightening reporting requirements for financial entities and incorporating climate-related risks into credit ratings and bank capital requirements.
“The Commission will reflect sustainability risks in financial reporting standards and accounting,” the document said. “The Commission will enable supervisors to address greenwashing.”
The strategy also paves the way for financing activities such as natural gas during the transition to a lower-carbon economy, to be included in the next part of its so-called taxonomy, due in 2022. That outlines what counts as green, with the first part having excluded natural gas, nuclear power and agriculture, among the most controversial sectors.
A European Commission spokesperson declined to comment.
“The Commission will consider proposing legislation to support the financing of certain economic activities, primarily in the energy sector, including gas, that contribute to reducing greenhouse gas emissions,” the draft said. Lawmakers from various member states including Germany and Poland had pushed for gas to be included in the taxonomy.
The latest plans to bring in energy from fossil fuels split lawmakers in the bloc’s parliament. Markus Ferber, a German conservative lawmaker, said that the use of transition technologies would bring “more nuance” that will help it be accepted by business. Bas Eickhout, a Dutch Green MEP, said it marked backsliding by the EU on its original green ambitions.
“With this strategy, you feel like they don’t want to shake things up,” Eickhout said, adding he could “smell everywhere the fear” after resistance on the initial plans. “It feels like they don’t want change, they just want business as usual falling under the agenda of sustainable finance.”
The taxonomy and green bond standard will underpin the region’s economic programme centred around the Green Deal, a sweeping strategy to reach net-zero emissions by 2050. The bloc itself is set to become one of the biggest sellers of green bonds over the next five years, including 30% of its 800-billion-euro ($951 billion) pandemic recovery funding.
The Commission will invite the European Securities and Markets Authority to assess how ESG factors are incorporated by credit rating agencies and will consider proposing an initiative to make sure those risks are captured by the assessments. The bloc will also ask the European Central Bank to conduct regular climate change stress tests.
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